The Plan of Adjustment is the proposal of how Detroit will deal with its debts and operate its city government as it begins to pull itself out of bankruptcy. Throughout the day, this blog will post all things relevant and important to the plan of adjustment. It will include stories and posts from WDET, from the Detroit Journalism Cooperative partners and anything else related to the Plan of Adjustment that you need to know. Next Chapter Detroit will update regularly. …and if you see something they don’t have that they should, email it to NextChapter@WDET.org
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Friday, Feb. 21, 2014

9:52 p.m.: The DIA is pleased with the plan. DIA Chairman Eugene Gargaro Jr. says it’s a “historic day.” But, nothing is saved it. The $820 million on the table in the DIA art/pension deal can only go toward the DIA art/pension deal. If an agreement can’t be made, Orr says, and groups go after that cash, it goes away. So, the risk to losing the money is still there. Read just a little bit more about the DIA liking the deal here.

9:45 p.m.: Throughout the course of today, we conducted several interviews about the Plan of Adjustment. Here are some highlights. Click the link to get their full interviews.

Josh Elling, Executive Director at Jefferson East Inc.: “We hope that it would not just simply be demolitions, it also would look at saving structures that could be salvaged that have some great reuse value for historic structures in our vital neighborhoods.” Get his full interview here.

Eric Lupher, Director of Local Affairs for Citizens Research Council of Michigan: “What I am seeing is a document written for lawyers by lawyers.” Get his full interview here.

Ryan Plecha, an attorney representing retired city workers including police and fire: “With the ruling today, there is potentially more room for mediation.” Get his full interview here.

Even if he persuades a menagerie of creditors to hop aboard and approve the plan of adjustment filed Friday, Orr’s blueprint for Detroit’s comeback does not assume any meaningful gains for the city’s population, property values or tax base in the next 10 years.

8:54 p.m.: How many tickets have you paid to Detroit this year? Whatever the number, and whatever the cost, it wasn’t nearly enough, according to the 440-page disclosure doc released today — along with the Plan of Adjustment. (I’m sure you’ve heard of it. We’ve been talking about it non-stop.) Anyway, the plan says: “Meter rates and parking violation fines are underpriced in comparison with those of other large cities and frequently are considerably lower than parking rates charged by neighboring privately operated garages and lots.” Amy Haimerl from Crain’s Detroit Business pulled this parking tidbit out of the Tolkien-length document:

But the garages and meters still aren’t pulling in what Orr thinks they should, so he is “exploring a potential monetization” of the seven parking garages and 3,404 parking meters owned by the Automobile Parking Fund, according to the bankruptcy disclosure statement. (The APF is an enterprise fund that technically owns the infrastructure and services the city’s parking bonds; the Parking Violations Bureau writes the tickets and enforces the laws.) “It could be a sale or it could be a lease,” said Orr’s spokesman, Bill Nowling. “The advantage if you lease it to someone who is the business, you benefit from the economies of scale. The cost of maintenance goes down. And right now, we have about half our our meters that don’t work, so that’s half of the money that’s not getting collected. A sale or lease increases the revenue stream to the city where it doesn’t exist now.”

6:50 p.m.: The Freep’s Matt Helms breaks down some of the key points of the Plan of Adjustment in 104 seconds.

6:47 p.m.: Here are a few interesting tidbits from the Freep’s Nathan Bomey. Very interesting. Is Interesting the right word?

The city of Detroit has no information technology system — at all — to manage its jails, according to the plan of adjustment. — Nathan Bomey (@NathanBomey) February 21, 2014

Detroit estimates in the plan of adjustment that if the bankruptcy is dismissed, its pension funds will run out of money in 10 to 13 years. — Nathan Bomey (@NathanBomey) February 21, 2014

35% of the time, Detroit Department of Transportation employees don’t show up to work, according to the city’s plan of adjustment. — Nathan Bomey (@NathanBomey) February 21, 2014

6:40 p.m.: The Detroit Free Press in its first editorial since the city’s Plan of Adjustment was filed came down squarely on the side of pensioners who stand to see a 34 percent cut if they’re in the General Retirement System and a more generous 10 percent if they’re retired from the police or fire departments. The editorial reads, in part:

The average general system retiree’s pension is about $19,000 a year. A 26% cut would mean that meager income drops to $14,060 a year. That’s $1,171 a month.

Of course, some of those pensioners may have other sources of income from social security, additional pension plans, their own savings or current employment. But the Freep’s point is not lost: it could be grim for many in the system. The Plan of Adjustment also assumes a successful sum of about $815 million resulting from the formula of foundation funding, a Detroit Institute of Arts pledge and Gov. Rick Snyder’s proposed $350 million (over 20 years) from the state. Which, the Freep correctly notes is a long way from a guarantee.

If the state doesn’t come up with its share of the deal — $350 million — the whole thing falls apart. And cuts to pensions become that much worse.

6:15 p.m.: It didn’t escape our notice when Mayor Mike Duggan and City Council President Brenda Jones released a joint statement today about the Plan of Adjustment. Mostly because they did it together, not because of anything surprising it said. Here’s the statement:

The Plan of Adjustment is a sober reality check for our city. While some city services would receive much needed help, it is no surprise there will be difficult decisions ahead that affect residents, city workers and retirees. The plan proposal provides us a framework for how we can move forward in delivering our most vital services with limited resources. The Mayor’s office and City Council are committed to working together to achieve the goal of putting the city back on a solid financial foundation. Across every department of city government, we are working together to identify new revenue streams and cost efficiencies that will allow us to provide well-managed services that all Detroiters expect and deserve. Our city’s future depends on our ability to grow its tax base, maximize efficiencies and manage costs. That is why we are united in our commitment to delivering a level of service that allows our city to retain and attract residents, grow businesses and encourage other forms of investment.

5:30 p.m.: The future organization and governance of the Detroit Water and Sewerage Department is far from finalized in the city’s Plan of Adjustment. There are hints for what Emergency Manager Kevyn Orr would like to see: a regionalized authority, a renaming of it to the Great Lakes Water and Sewer Authority and some funding and structural provisions.

Next Chapter Detroit heard from Nick Schroeck, director of the Transnational Environmental Law Clinic at Wayne State University Law School, who said environmental groups aren’t so worried about what’s in the plan of adjustment. But they are worried about what’s happening at the department, whatever it’s called. “We were mainly concerned about making sure that the facility is in compliance with their environmental permits, including controlling combined sewer overflows,” he says. “Regardless of what they do with the governance of the utility, creating a regional authority, they still need to make some significant investment in pollution controls.

Orr’s plan is just that – a plan. Nothing is set in stone yet, and in fact, it’s likely to be picked apart and attacked in the coming months, especially by creditors who believe they’re getting the raw end of the deal. They will review the plan, and have a chance to vote on it, but U.S. Bankruptcy Judge Steven Rhodes is the ultimate decider. He could decide to “cram down” a plan, even if the creditors object.

So far, agreement on major issues seems far off, or at least grounds for serious horse trading. Some creditors said they believed Detroit’s leaders were exaggerating the weakness of the municipal pension system as a way of inflating pension claims in the bankruptcy.

Under the plan the city would fully repay water and sewer bonds, as well as other debt that is backed by collateral. Detroit water bonds maturing in July 2034 traded today at 94.5 cents on the dollar, the highest since July 17, the day before the city’s bankruptcy filing, according to data compiled by Bloomberg. Yesterday the debt exchanged hands 20 times, the most since July 23, the data show. The securities are insured by Assured Guaranty Municipal Corp.

The plan also attacks existing labor contracts. The damage to the fiscal health of Detroit did not happen all at once. Since the onset of the Great Recession, the city has repeatedly cut its payroll and operating budget by close to 40%. Public employees have already been “adjusted” severely. They have every right to claim that the plan of adjustment is unfair.

4:18 p.m.: Kevyn Orr spoke for 45 minutes at his press conference earlier this afternoon about the release of the Plan of Adjustment. He was in Philly but a Detroit flag was flown behind him. We broke it down to 24 tweets. If you missed the presser and need a recap, go here.

4:15 p.m.: “Let us be clear. The banks have screwed Detroit.” So writes our Detroit Journalism Cooperative partner, The Michigan Citizen, in a column titled “Blind Justice” that opines about the Plan of Adjustment and the process used to develop it.

Josh Elling, executive director of Jefferson East, Inc.

3:45 p.m.:Next Chapter Detroit just heard from Josh Elling, executive director of Jefferson East Inc., a nonprofit collaboration of existing community development corporations, other nonprofits, neighborhood associations and local businesses. He focused on the Plan of Adjustment’s provision to improve the city’s blight removal – an up to $500 million expenditure during the next few years.

“While it’s unfortunate that pensioners would have to take reductions to their benefits, it’s vital that the city makes investments in blight removal and especially updating their systems. All too often at Jefferson East, we find we’re the ones that have to do the research on who owns which property, who is responsible for the blight because the city does not have a centralized database of ownership or condition,” he says. “It’s ridiculous that a nonprofit has to be the one to be responsible to find who owns the building that’s undergoing an arson investigation. Hopefully the funds freed up by bankruptcy will allow the city to make the investment in the systems that make that work much more easy and efficient.”

3:04 p.m.: The city of Detroit filed its bankruptcy plan of adjustment today. What’s in the plan? WDET’s Craig Fahle and Quinn Klinefelter, and Next Chapter Detroit’s Sandra Svoboda provide details as they emerge from the plan, and speak with local leaders and lawyers about what the plan would do.

At the rate that EM Orr suggests tearing down blighted houses (400-450/week), Detroit could remove almost all in 3 years #freep — John Gallagher (@JGallagherFreep) February 21, 2014

1:03 p.m.: Here’s a recap of what we’ve learned in the last hour.

Orr is offering an incentive to retirees for timely settlement. Detroit police/fire retirees would get 96 percent of pension while Detroit general retirees would see pensions cut an estimated 26 percent if timely settlement is reached, sted of 34 percent. (@RobertSnell_DN, Detroit News)

As part of its restructuring plan, Detroit is seeking $300 million in new financing as it leaves bankruptcy to help it provide city services. (BrentSnavely, Detroit Free Press)

Detroit would put $526.5 million into a trust over 20 years to provide health care for current/future city retirees and dependents. (@RobertSnell_DN, Detroit News)

Only 30 percent of businesses operating in the city of Detroit have “valid licenses,” according to the disclosure statement. (@NathanBomey, Detroit Free Press)

Under Detroit debt-cutting plan, city would stop providing cost of living adjustments for retirees for at least 10 years. (@RobertSnell_DN, Detroit News)

The Detroit health care trust would be ruled by board of trustees. City will stop offering life insurance or death benefits to retirees. (@RobertSnell_DN, Detroit News)

The city of Detroit had $246.5 million in uncollected property and income taxes and fees in 2011, according to the disclosure statement. (@NathanBomey, Detroit Free Press)

12:56 p.m.: Orr said what? Orr said this. We broke down his official statement:

Devotes $1.5 billion over 10 years to capital improvements, blight removal and equipment and technology upgrades.

During the next five years, up to $500 million of the $1.5 billion will go toward blight removal.

Proposes 20 percent payment to unsecured, non-retiree creditors in the form of new securities from the city and a pledge to increase that if the city’s finances improve.

Assumes $465 million from third-party donors and the Detroit Institute of Arts toward the pension funds over two decades, subject to city and pension fund agreement and conditions.

Includes Gov. Rick Snyder’s proposal to send $350 million of state money to Detroit over 20 years.

Allows that if police and fire pensioners agree to the plan and there is some settlement with the state, they could receive more than 90 percent of their pensions with the elimination of cost-of-living allowances.

General retirees cold receive in excess of 70 percent of their pensions after elimination of cost of living allowances.

Detroit city retirees in the general retirement system will face up to a 34% cut to monthly pensions. Police and fire retirees face up to a 10% cut, according to the proposed bankruptcy blueprint filed Friday morning.

A. U.S. Bankruptcy Judge Steven Rhodes will set a hearing on the adequacy of the disclosure statement and whether the average creditor, such as a retiree, can understand how he or she will be affected by the plan, said Laura Bartell, a bankruptcy law professor at Wayne State University.

While Orr’s plan codifies the fundamentals of a much-talked-about deal to prevent the forced sale of any masterpieces and spin off the city-owned museum into an independent nonprofit, several critical steps remain before a final settlement would guarantee the city-owned museum safe harbor in Detroit’s historic bankruptcy.

About $520 million will be dedicated to blight removal during the next six years, according to the disclosure statement. The city expects the infusion of money would result in demolitions ramping up to 400 to 450 a week from the current pace of 114 a week. “The City intends to focus its initial demolition efforts around schools and other areas identified by the Detroit Works Project and the Detroit Future City project,” according to the disclosure statement.

12:24 p.m.: This is what Kevyn Orr’s office has to say:

“There is still much work in front of all of us to continue the recovery from a decades-long downward spiral. We must move swiftly to emerge from bankruptcy so that the financial distress harming the City can end,” Kevyn Orr said in a statement. “We maintain that the Plan provides the best path forward for all parties to resolve their respective issues and for Detroit to become once again a city in which people want to invest, live and work.”

12:21 p.m.: So what does the Plan of Adjustment actually look like? This!

12:16 p.m.: Oakland County says this: “The City of Detroit had not given Oakland County any preliminary drafts of its plan of adjustment filed in U.S. Bankruptcy Court today; we just obtained a copy of our own. It is premature for Oakland County to comment on any section of the plan of adjustment until we have taken the time to evaluate its contents thoroughly.”

12:04 p.m.: It’s been about an hour now. Here’s another recap:

The city of Detroit is still pursuing bankruptcy financing with a hope of securing $20 million per month for investments. (@NathanBomey, Detroit Free Press)

City anticipates investing $1.5 billion over 10 years for improvements, including reducing crime, fighting blight and turning on lights. (@haimerlad, Crain’s Detroit Business)

Under the plan, Detroit says police and fire retirees will retain 90% of pensions while general retirees retain 70% of pensions. (BrentSnavely, Detroit Free Press)

The city of Detroit had $246.5 million in uncollected property and income taxes and fees in 2011, according to the disclosure statement. (@NathanBomey, Detroit Free Press)

Only 30% of businesses operating in the city of Detroit have “valid licenses,” according to the disclosure statement. (@NathanBomey, Detroit Free Press)

Plan of adjustment would have the pensions use an estimated 6% rate or return instead of the 8% they had been using for calculations. (@haimerlad, Crain’s Detroit Business)

Plan offers carrot to police and fire pensioners: Vote for plan early, and we’ll add 4%, so you would only lose 6% value on your pension. (@haimerlad, Crain’s Detroit Business)

11:55 a.m.: We talked to Alex J. Pollock from the American Enterprise Institute: “It’s only one more complicated step in a highly contentious, precedent-setting, politically charged dispute with a long way yet to go. All the various lawyers involved will do fine as arguing about how to divide up the inevitable losses continues.”

11:49 a.m.: So what exactly is the Plan of Adjustment and this disclosure statement we’re talking about? Here are the definitions.

11:47 a.m.: Governor Rick Snyder chimes in. Says:

“Detroit’s comeback is underway. Emergency Manager Kevyn Orr has submitted a thoughtful, comprehensive blueprint directing the city back to solid financial ground, a crucial step toward a fully revitalized Detroit. There will be difficult decisions and challenges for all sides as this process moves forward.

“The state’s focus is on protecting and minimizing the impact on retirees, especially those on fixed, limited incomes, restoring and improving essential services for all 700,000 Detroit residents and building a foundation for the city’s long-term financial stability and economic growth.

“This plan of adjustment is a critical step forward as we look to resolve problems decades in the making.

“Let’s use this plan as a call to action for a voluntary settlement as part of the mediation process to resolve the bankruptcy more quickly and soften the tough but necessary changes. We already have witnessed some strong collaboration around innovative ideas. We hope there can be more and that these efforts come to fruition.

“Detroit’s long-term viability is not just essential for its residents — but to all Michiganders.”

10:48 a.m.: Was Detroit even eligible to file for bankruptcy? Today the 6th Circuit Court of Appeals agreed to answer that question, raised by a group of pensioners. The panel in Cincinnati said it would hear the group’s appeal which is a challenge to the December decision from Bankruptcy Judge Steven Rhodes who ruled Detroit was authorized to pursue its landmark bankruptcy case. If you really want to read the 30-page appeal, here it is.

In addition, we’ll find out exactly how deep of a cut Orr expects the retirees to take on their pensions. To date, everything has been speculation. Friday, we find out how effective The Grand Bargain – the deal between the foundations, the state and the Detroit Institute of Arts to raise about $800 million – has been at protecting pensioners and the city-owned art collection.

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